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International Business & Economics Research Journal – November/December 2014 Volume 13, Number 6 Crowdfunding To Generate Crowdsourced R&D: The Alternative Paradigm Of Societal Problem Solving Offered By Second Generation Innovation And R&D Chris William Callaghan, University of the Witwatersrand, South Africa Abstract In a global context of resource scarcity few incentives exist for firms to pursue innovations that provide social externalities if these are not inherently profitable. The purpose of this article is to present an alternative paradigm of societal problem solving entirely premised on ‘second generation innovation’ processes. Further, a theoretical model of multidimensional, or three dimensional, knowledge creation is offered, together with the notion of a ‘multiplier effect’ that relates to how knowledge creation can increase exponentially when knowledge is not constrained by proprietary requirements. Second generation innovation is based on probabilistic processes that utilize and maximize economies of scale in pursuit of problem solving. Two processes that contribute to the potential of second generation innovation to solve societal problems are crowdfunding and crowdsourcing. It is argued that the processes required to enable a new paradigm in societal problem solving already exist. A further model is developed based on potential synergies between crowdfunding and crowdsourced research and development. This theoretical model predicts that R&D productivity can be accelerated significantly, and if applied in fields such as proteomics or medical research in general can accelerate increases in research output. Keywords: Second Generation Innovation; Crowdsourcing; Crowdfunding; Medical Research; Proteomics INTRODUCTION he world currently faces the prospect of catastrophic events, or disasters in which there is the threat of large-scale loss of human life. One possible example is the advent of a bioevent, or disease outbreak. T In a world now connected by airline travel, this could be in the form of a global epidemic (Maher, 2013), in the form of, amongst others, the newly emerged Middle East Respiratory System Coronavirus (MERS- CoV), Severe Acute Respiratory Syndrome (SARS)(BBC, 2013), or the H7N9 ‘Bird Flu’ virus (Siu, Twinnie & Pomfret, 2013). A research and development (R&D) innovation pipeline, or supply of knowledge that can result in new medicines, is critically important (McKenna, 2014). This innovation pipeline is not only important to solve entirely new and emerging problems, but also for those that have previously been thought to be solved, but are re- emerging. Other examples of this particular threat are the emergence of diseases that decades ago were considered under control. Currently, Ebola has re-emerged in the form of a new epidemic that has broken out in West Africa (Krishnan, 2014). Polio has re-emerged in countries such as Pakistan (Zia, 2014) and Nigeria (Ajumobi, 2014) and fatal forms of tuberculosis have re-emerged in the form new strains of airborne tuberculosis that are now resistant to all forms of antibiotics (Maher, 2013). Increasingly, other forms of fatal bacteria have re-emerged; certain bacteria, or ‘superbugs’, are now totally resistant to, and others are increasingly resistant to, antibiotics (Halifax, 2013). Over two million people are currently infected with antibiotic resistant organisms (McKenna, 2014). Amidst decreasing global production and approvals of new antibiotics, certain commentators have therefore raised concerns that the Copyright by author(s); CC-BY 1499 The Clute Institute International Business & Economics Research Journal – November/December 2014 Volume 13, Number 6 innovation pipeline has slowed, or might be ‘nearly broken’ (McKenna, 2014). This is a dangerous state of affairs as the world might be facing a return to an era where even minor injuries and routine surgery are life-threatening (Halifax, 2013). This article argues that the innovation pipeline is fundamentally unable to deal with challenges because the innovation pipeline is inherently coupled to the dictates of the market mechanism, which disproportionately allocates resources to other ends than those that are required to address global catastrophes. It is argued that market- dictated innovation and research and development (R&D) belongs to a ‘first generation’ paradigm of innovation and R&D. Although the market seems to be astonishingly effective at providing for most human needs, market failure is most prevalent when innovation is required that is not inherently profitable, notwithstanding the positive externalities that may arise later from such investments (Martin & Scott, 2000). It is perhaps only social innovation that has the answers to these challenges, because of its focus on human costs and externalities and not constraints posed by the need for profitability. Until relatively recently, there were few accessible alternatives to profit-oriented innovation for societal problem solving. The advent of information technology, however, has enabled probabilistic systems of problem solving, such as crowdsourcing, that have dramatically decreased the costs involved in knowledge search and knowledge management. Probabilistic systems that use the ‘crowd’ have enabled radically lower cost models of fundraising (in the form of crowdfunding) and knowledge sourcing (in the form of crowdsourcing). “Simply defined, crowdsourcing represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call”, which can take the form of “peer- production (when the job is performed collaboratively), but is also often undertaken by sole individuals” (Howe, 2006, p. 5). Another challenge faced by profit-seeking firms in dealing with large-scale social problems is the scale of investments in innovation and R&D that are required to sufficiently address these; market-generated innovation and R&D is sensitive to scale due to the risks involved under profit constraints. It is therefore argued that ‘first generation’ innovation and R&D cannot sustain the global innovation pipeline that is needed in order to address the challenges discussed above, notwithstanding that these health challenges are but one dimension of the challenges faced by humanity at this point in time. Another challenge faced by first generation finance, or finance that is tethered to the need to generate profitable returns, is that it also does not sufficiently utilise probabilistic mechanisms to generate funds under conditions that are unprofitable. The new ‘second generation’ paradigm of crowd-enabled fundraising, in the form of crowdfunding, has potentially heralded in an age of probabilistically enabled fundraising, enabled by the ‘crowd’. These developments have heightened what appears to be an increasing tension between the emergence of probabilistically-based second generation (SG) systems and the failure of ‘linear’ first generation (FG) systems to deliver social innovations, or innovations with large-scale positive externalities that do not necessarily provide opportunities for profit. RESEARCH OBJECTIVE A fundamental and unresolved tension therefore seems to run through the literatures that relate to academic work in general. On the one hand, over the past decades an explosion in the form of exponential growth in information and knowledge has occurred that has been unmatched in human history (Adair & Vohra, 2003). On the other hand, many problems facing humankind in the form of disease and catastrophic events remain in a state similar to that faced decades ago. In the face of R&D failure associated with first generation R&D (FGR)(Callaghan, 2014a), an alternative is offered in this paper, in the form of second generation innovation (SGI), that is primarily underpinned by second generation R&D (SGR) and second generation fundraising (SGF). The objective of this article is therefore to present what is potentially an alternative paradigm of societal problem solving based entirely on second generation (SG) processes. A theoretical model of multidimensional problem solving, termed Multidirectional, or ‘three dimensional’, knowledge creation in the form of Non-Proprietary Crowdsourced R&D is contrasted with the Copyright by author(s); CC-BY 1500 The Clute Institute International Business & Economics Research Journal – November/December 2014 Volume 13, Number 6 Dyadic, or ‘two dimensional’, knowledge creation process of Proprietary Crowdsourced R&D. The argument is made that the proprietary requirements of knowledge in crowdsourced R&D exist as a boundary condition to theory relating to crowsourcing as a form of innovation. The concept of a ‘multiplier effect’ is also introduced; that relates to exponential increases in knowledge creation that may result from a relaxation of the proprietary requirements of knowledge generation. It is argued that the exponentially increasing global body of information and knowledge requires a transmission mechanism to translate this increase into an equivalent exponential increase in the outputs of social problem solving. An exponentially increasing body of information, it is argued, therefore requires a ‘mechanism’ of information processing for this transmission to social problem solving to fully occur; and that such mechanisms already exist, in the form of probabilistic systems of knowledge management such an crowdsourcing. The paper is structured as follows. First, the alternative paradigm

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